“Europe Votes: Bulgarian Elections: The Opportunity and Time for Major Judicial Reforms” by Robert Guttman in TransAtlantic Magazine.

Europe Votes: Bulgarian Elections: The Opportunity and Time for Major Judicial Reforms

by Robert J. Guttman

March 14, 2017

Americans and European will be closely watching the election results across Europe in 2017.

Germany and France will be the two most watched elections to see how much the voters are concerned about fraying EU-US relations under the Trump Administration, the rise of populist parties and the slow-growth economies of many EU nations.

While the upcoming elections in Germany and France will hold the most attention for an American audience, other European Union nations, including Bulgaria will be holding elections this year.

The key issues in the upcoming national election in Bulgaria center around fighting corruption and providing real judicial reform. Attracting more foreign investment (FDI) and providing more suitable jobs to keep young, educated Bulgarians from leaving the country are other important issues in the election campaign.

Bulgaria will shortly be facing a new round of national elections. Currently, an interim Government appointed by the new President of Bulgaria is in place but essentially as a “caretaker” Government with limited powers. This all came about after the resignation of the last GERB Government(Center-right party which has largest membership in Parliament), led by Prime Minister Borissov for the second time before the end of his mandate. Many observers see a close race between the GERB party and the Socialist Party, but much may depend on the possibility of the role of the Turkish minority party, Movement for Rights and Freedom, and indeed even some smaller factions emerging and how alliances can and will be made.

Judicial Reform

A major issue facing the future of Bulgaria is the high prevalence of corruption or the opportunity for such manipulations within the current system of rules, regulations, the structure of Government and the Judiciary. Currently, Bulgaria stands in 27th place out of the 28 members of the European Union on all scales of corruption, according to a report, prepared for the European Parliament. Most knowledgeable observers do not see a single problem issue as the key to reform but rather a linked series of actions that must be addressed in concert if serious change in the effort to overcome corruption is to be addressed. These actions are to be based on Judicial Reform, with a satisfactory resolution of the reform of the office of the Prosecutor General, the positioning of the Judiciary as a totally independent body, and a move to use these changes to ensure the rule of law, that will prevent behaviors with regard to commercial takeovers currently able to be engineered by misuse of the system and benefiting only a few.

The vast majority of the Bulgarian public, from taxi drivers to students, recognize how the current system functions. Many young people are choosing to leave Bulgaria rather than be embroiled in the system. One statistic notes that 80 percent of individuals with Ph.D. qualification have already left Bulgaria. An article in the Express has a recent headline stating “Migrants leaving Bulgaria are Causing Country’s Economy to Suffer.” It goes on to say, “Many educated young Bulgarians are leaving Bulgaria for better job opportunities in the United Kingdom and other European Union countries.”

Perhaps of equal importance for the future and a vital outcome for the economy of Bulgaria will be an impact on the inflow of a substantial increase in Foreign Direct Investment. Currently, international investment is being seriously damaged by delays for actions on the requirements for Judicial Reform and an Independent Judiciary.

The 500-kilo gorilla in the room is the overarching need for Judicial Reform. In this regard, two primary outcomes are needed. The first is the full independence of the Judiciary, the courts and the judges. The second is the positioning and organization of the Prosecution. The latest attempts at reform of the Judiciary have seen some substantial progress but is still open to political control or influence. The second area requiring action is that of the Prosecutor General. Issues here date back to the changes of the early 1990’s when this office was granted extensive powers, which ignored almost any requirement for checks and balances over that office. Elected for a seven year term it is not surprising that the office has assumed a major influence in the development of Bulgaria today. Many observers suggest that without controls, the comment of one past Prosecutor that “only God is above me,” has become prophetic and needs to be addressed.

Foreign Direct Investment

Foreign Direct Investment (FDI) is seen by many as a strong indicator of trust in a country. Investors have many opportunities for investment. The trust is in the Government and its policies, it is in the specific investment opportunities and more important is the security of a legal system, which will protect the investor’s rights through a transparent and clear Judiciary. Unfortunately, the recent behavior of certain groups and their actions known as “hard takeovers” to subvert or use the Judiciary system through the application of planned subversive activity has not shown a healthy and welcoming environment in Bulgaria.

In recent times, Bulgaria was seen as a major target for investment. Now it has fallen under a cloud, according to the National Statistic Office. As the leading Bulgarian Economist Krassen Stanchev has recently shown, Bulgaria now performs much worse than countries like the Czech Republic or Romania. Business environment and property indicators are stagnating. Rule of Law, FDI (inflows and stocks of FDI), Independence of Judiciary and Regulatory Uncertainty indicators are deteriorating and Bulgaria’s FDI move downward toward the level of the Western Balkans or Russia. There are some positive factors, which can counteract these trends but the international picture is not bright as long as the concern for such strategies as the “hard takeover”, which uses judicial and legislative means to attack their targets, can continue to exist. Recent examples of these takeovers, or attempted takeovers still in motion, are the Corporate Commercial Bank, the Belvedere Group, and the 2015 amendments to the Social Insurance Code. Still in process the case of the attempt of Technomarket to employ the concept of a “hard takeover” against the company Glorient.

Glorient is a company with British and US investors that invests in the development and management of commercial real estate. They were therefore surprised when a local oligarch with a record of such “hard takeovers” took over their primary tenant (Technomarket) and immediately stopped paying rents. The new tenant claimed that the split ten years earlier between the then Technomarket and the newly founded Glorient should be nullified and that the ownership of premises actually still belonged to Technomarket. This was despite clear evidence of payment and transfer of title ten years before and the complete payment of all taxes and other fees required by the Government since that date. Glorient’s international investors rejected this position out of hand. They are challenging what they feel are the outlandish and illegal position of Technomarket with around 74 claims in the courts. Their action is revealing increasingly how this type of takeover is targeted, managed and providing insights into the mindset of those attempting to carry out this most recent “takeover”.

The continuing high profile coverage of the unfolding Glorient case is a major and very visible opportunity to observe a case study developing in front of the media, the courts, international investors and observers and the Bulgarian public. From previous such cases it appears that traditionally the “hard takeover” team using planning, media (under their control), a limited cadre of judges, their team of enforcement agents, and their “clean up” team to, take and close down the activity as rapidly as possible before the target group have time to react. This was specifically the case in both the Belvedere and the Corporate Commercial Bank actions. The physical and legal action was accompanied by a mass media blitz using the communication assets owned or controlled by those entities. However, such tactics have not proven successful so far in the Glorient case. At first, the “paid for” media attempted to paint Michael Uhler, the American representing the international investor group East Balkan Properties (EBP) as just a face and “actor” not really representing international investors. In fact, the “takeover team” originally claimed in their controlled media that no such original transaction had taken place. As documentation has been presented clearly revealing the transfer of funds during the original purchase of shares and the full transfer of title deeds it has become obvious that the usual “yellow” journalism or “fake news” media strategy has not and is not working.

The Glorient case is gaining an increase and awareness in international observation and the international media. In Bulgaria, embassies are sending observers to monitor and observe the legal hearings. Both the unaligned media and the judges are showing careful review and analysis of the activities underway. The free press is also monitoring and reviewing the action of a minority of judges who have known relationships with Technomarket. However, Michael Uhler from EBP has only positive statements to make on the conduct of the Judiciary. To date, Glorient has spent in legal fees amount to 1,200,000 million Euros, 800,000 Euro of which has been recovered from overdue rents. In addition, losses due to nonpayment of rent are in the 3,500,000 Euro range.

The current struggle will continue for some time. The increased strategy of Technomarket is marked by delaying tactics as their primary goal. At the same time, they are selling their products in stores they do not own, do not pay rent for, utilities, or real estate taxes. Among the procedural tricks used by Technomarket are the filing of lawsuits and then withdrawing them, perhaps waiting for a more “sympathetic” judge. In other cases, they claim they cannot find the full documentation and need time to complete their work. In yet other requests leading to delays, they ask for information to be forwarded from the Prosecutors or even international sources. In all cases, they even file multiple claims on the same property and on the same grounds. Perhaps most interesting is their delaying payments of court fees. The owners of Technomarket are in waters they have not been in before, international investors fighting back against an oligarch used to having his own way with contacts and relationships throughout the Government. As the case further develops, it will be interesting to see the evolution of this “hard takeover”. What is sure, the case is gaining in international interest with major players watching the process and the potential outcomes with interest. On a world scale the amount of funds involved while large, are not Earth shattering. However, the exposure of this type of attempted takeover does no good to the perception of Bulgaria as a safe place to invest.

The Oligarch

“Reporters without Borders” in their 2016 report noted that Bulgaria is ranked the lowest in position for a European country. Bulgaria ranks 113 in the world in terms of press freedom. Bulgaria is ranked next to Zambia and Congo-Brazzaville. The report focused extensively on one Bulgarian name, that of the individual behind the Technomarket attempted takeover of Glorient, that of Delyan Peevski. They point out the degree of corruption and collusion between the media, politicians, and oligarchs. They also note Peevski was Bulgaria’s intelligence chief for five days in 2013 before a popular mass protect of citizens forced the Socialist Government to cancel that role. What is interesting is that no leaders at the time will say how this selection was made and by whom.

The report further describes that he has created a “shadowy media empire to intimidate and denigrate any opposition”. This fact was clearly visible as seen by his role in bringing down Corporate Commercial Bank in June of 2014. While the damage done to the Bulgarian economy was major, the writing down of real assets and their acquisition by others at much undervalued prices was clearly evident as an outcome of the involvement.

In his role as a Member of Parliament from the Turkish Minority Party, Peevski wields a degree of influence on a range of areas effecting business and commerce. With regard to the Glorient case, an interesting development by the Peevski controlled company is that, he has transferred Technomarket Bulgaria to TGI Middle East FZE, a Dubai offshore company. That company is a former majority owner of Bulgartabac – a tobacco holding connected to Peevski. For normal companies such a transfer can take in some case months. In this case, the Committee for Protection of Competition acted within days to give their approval – interesting. The same Committee gave a permission to Peevski to take control over Technomarket, also in few days. For the upcoming national elections, Peevski is again a candidate for a Member of Parliament in two regions, from the Turkish Minority Party.

When examining the activity underway it is possible to think back to the George Orwell novel Animal Farm, a parody on Communism. Of course, all the animals on the farm had originally joined together to overthrow the farmer. But most of the animals had concluded the all was not being managed equally for all the animals. They complained to the animals in charge the PIGS. The answer from the PIGS was “All animals are created equal, but some animals are more equal than others”. This is even more interesting.

In an article in Global Finance Magazine entitled “Bulgaria Attractive Despite Corruption” says “Bulgaria’s multilateral workforce attracts foreign investors, but corruption is a problem.”
Corruption in neighboring Romania made news around the world as “hundreds of thousands of protestors took to the streets to protest corruption earlier this winter”, according to DW.

Corruption, foreign direct investment and a functioning independent judiciary will be key issues in the upcoming elections in Bulgaria.

The world will be watching to see the election results in Bulgaria and more importantly how the new government effectively carries out these reforms.

Bulgaria has the potential to have a government free of corruption. The question is: Does Bulgaria have the political will to seriously tackle corruption and provide its citizens with a free and independent judiciary free of political manipulation?

See “Europe Votes: Bulgarian Elections: The Opportunity and Time for Major Judicial Reforms” in TransAtlantic Magazine.